The MPERC has released an approach paper to revise tariff determination norms for solar power procurement in Madhya Pradesh, proposing a new pre-tax return on equity of 20% and significantly reduced capital costs for solar projects compared to previous standards. Key terms include a project life of 25 years, unchanged debt-equity ratio at 70:30, and specific conditions for sharing Clean Development Mechanism (CDM) benefits. The proposed norms aim to attract developers by improving financial viability while keeping vital components like interest rates on debt consistent with earlier regulations.

1. MERC’s Approach Paper for solar tariff
Mohit Kathel www.indianpowerindustry.com
MPERC’s Approach Paper on Fixation of norms for determination of tariff for
procurement of power from Solar based Power Projects
MPERC has issued an approach paper to revise the norms for determination of tariff for purchase of power by
the distribution licensees from solar projects in Madhya Pradesh.
In the approach paper MPERC has considered capital cost as per the proposed norms of CERC in its Sou-Motu
petition No. 353/2013 and the norms as specified in the previous tariff order dated 01.08.2012. As per the
approach paper proposed RoE is 4% higher than previous, proposed project cost is much below than the
prevailing cost of Rs. 10 Cr. Per MW, while other norms such as Interest on Working capital, interest on dept,
depreciation are taken as it is without any variation. The proposed norms of the approach paper emphasis on
attracting developers to the market.
Terms and conditions proposed in the approach paper are:
Life of the Solar Project: 25 Years
Transmission & Wheeling charges: levied when developers is other than distribution licensee, no transmission &
wheeling charges shall be levied when buyer is distribution licensee.
Sharing of CDM benefit: “The CDM benefit should be shared on a gross basis, starting from 100% to
developers in the first year after commissioning and thereafter reducing by 10% every year till the
sharing becomes equal (50:50) between the developers and the licensees/consumers in the sixth year.
Reactive Charges: 27 Paise per unit.
Drawing of power during shutdown and other emergencies: Drawl should not exceed 10% of the capacity of
plant and will be billed as per the Temporary charges for HT industrial category defined in ARR of the
distribution company.
Shifting from one buyer to another: Developer selling to third party or having captive consumption can
terminate the existing supply agreement and can sign the new PPA with Distribution Company or utility with the
prior permission of the commission.
If the buyer desires to terminate the existing PPA signed with utility then it can only be done if the utility is
default in payment.
Existing norms and proposed norms for Solar PV projects above 2 MW, Rooftop & below 2MW and for solar
thermal is presented below:
Parameters
Project Life: Project life of all the existing and upcoming plants has been proposed as per the existing tariff order
which is 25 years.
Debt-Equity Ratio: No change has been proposed in the Debt: Equity ratio norms and is fixed as 70:30.

2. MERC’s Approach Paper for solar tariff
Mohit Kathel www.indianpowerindustry.com
Project Cost (Rs. Cr per MW): Due to technology advancement the project cost of solar PV projects have
reduced considerably. In the proposed norms capital cost proposed are Rs. 6.12 Cr. And Rs. 6.5 cr. against
existing 10.25 Rs. Cr and 10.5 Cr. for project above 2 MW and rooftop & below 2MW projects respectively. In
solar thermal section proposed capital cost is 12 Cr. against existing cost of 13.25 Cr.
Pre-tax return on equity: to attract new players and to enhance competition in market Pre-tax return has been
proposed on a higher side which is 20% against the existing 16% RoE.
Interest on debt: No change has been proposed in the interest rate on debt. The existing interest on debt is
12.75%.
Working capital: No change has been made in the conditions as defined in the tariff order of 01.08.2012. to
work out the working capital for solar plants three norms are being defined in the order: a) O&M expenses for
one month, b) Receivables equivalent to 2 (Two) months of energy charges for sale of electricity calculated
on the normative CUF, c) Maintenance spare @ 15% of operation and maintenance expenses.
Interest on working capital: 13.25%
Depreciation (% of project cost per annum): 7.00% (for first 10 years) and 1.333% (for 11-25 years) in case of
types of solar power plant and a salvage value (% of asset value) for solar thermal plant is 10.00%.
O&M Cost (% of project cost): 0.5% for 1st year of operation escalated at the rate of 5.72% p.a. from 2nd year
onwards plus 0.3% of depreciated assets as insurance charges.
Capacity Utilization Factor (CUF): 20% derated at the rate of 1% of CUF each year from 3rd year onwards for all
solar PV power plants and 23% derated at the rate of 0.5% of CUF each year from 3rd year onwards for solar
thermal plants.
Auxiliary Consumption: Auxiliary consumption as per proposed norms for solar PV plants shall be 0.25% and for
solar thermal it should be 6.50%.
Discounting factor specified in the Approach paper: 10.20%.

3. MERC Approach Paper Solar Tariff 2014.xlsx
Existing tariff order dated 01.08.2012 As Proposed Existing tariff order dated 01.08.2012 As Proposed Parameters Existing tariff order dated 01.08.2012 As Proposed
Project Life 25 Years 25 Years 25 Years 25 Years Project Life 25 Years 25 Years
Debt-Equity Ratio 70:30 70:30:00 70:30:00 70:30 Debt-Equity Ratio 70:30 70:30
Project Cost (Rs. Cr
per MW)
10.25 6.12 10.5 6.5
Project Cost (Rs. Cr
per MW)
13.25 12
Pre-tax return on equity 16% 20% 16% 20% Pre-tax return on equity 16% 20%
Interest on debt 12.75% 12.75% 12.75% 12.75% Interest on debt 12.75% 12.75%
Working capital
a) Operation & Maintenance expenses for one
month; b) Receivables equivalent to 2 (Two)
months of energy charges for sale of electricity
calculated on the normative CUF; c)
Maintenance spare @ 15% of operation and
maintenance expenses
a) Operation & Maintenance expenses for one
month; b) Receivables equivalent to
2 (Two) months of energy charges for sale of
electricity calculated on the normative CUF; c)
Maintenance spare @ 15% of operation and
maintenance expenses
a) Operation & Maintenance expenses for one
month; b) Receivables equivalent to 2 (Two)
months of energy charges for sale of electricity
calculated on the normative CUF; c)
Maintenance spare @ 15% of operation and
maintenance expenses
a) Operation & Maintenance expenses for one
month; b) Receivables equivalent to
2 (Two) months of energy charges for sale of
electricity calculated on the normative CUF; c)
Maintenance spare @ 15% of operation and
maintenance expenses
Working capital
a) Operation & Maintenance expenses for one
month; b) Receivables equivalent to 2 (Two)
months of energy charges for sale of electricity
calculated on the normative CUF; c)
Maintenance spare @ 15% of operation and
maintenance expenses
a) Operation & Maintenance expenses for one
month; b) Receivables equivalent to
2 (Two) months of energy charges for sale of
electricity calculated on the normative CUF; c)
Maintenance spare @ 15% of operation and
maintenance expenses
Interest on working
capital
13.25% 13.25% 13.25% 13.25% Interest on working capital 13.25% 0.1325
Depreciation (% of
project cost per annum)
7.00% (for first 10 years) and 1.333% (for 11-25
years)
7.00% (for first 10 years) and 1.333% (for 11-25
years)
7.00% (for first 10 years)
and 1.333% (for 11-25 years)
7.00% (for first 10 years) and 1.333% (for 11-25
years)
Salvage value (% of asset value) 10.00% 0.1
O&M Cost (% of
project cost)
0.5% for 1st year of operation escalated at the
rate of 5.72% p.a. from 2nd year onwards plus
0.3% of depreciated assets as insurance charges
0.5% for 1st year of operation escalated at the
rate of 5.72% p.a. from 2nd year onwards plus
0.3% of depreciated assets as insurance charges
0.5% for 1st year of
operation escalated at the rate of 5.72% p.a.
from 2nd year onwards plus 0.3% of depreciated
assets as insurance charges
0.5% for 1st year of operation escalated at the
rate of 5.72% p.a. from 2nd year onwards plus
0.3% of depreciated assets as insurance charges
Depreciation (% of project cost per annum)
7.00% (for first 10 years) and 1.333% (for 11-25
years)
7.00% (for first 10 years) and 1.333% (for 11-25
years)
Capacity Utilization
Factor (CUF)
20% derated at the rate of 1% of CUF each year
from 3rd year onwards.
20% derated at the rate of 1% of CUF each year
from 3rd year onwards.
20% derated at the rate of 1% of CUF each year
from 3rd year onwards.
20% derated at the rate of 1% of CUF each year
from 3rd year onwards.
O&M Cost (% of project cost)
1% for 1st year of operation
escalated at the rate of
5.72% p.a. from 2nd year onwards plus 0.3% of
depreciated assets as insurance charges
1% for 1st year of operation
escalated at the rate of 5.72% p.a. from 2nd year
onwards plus 0.3% of depreciated assets as
insurance charges
Auxiliary Consumption 0.25% 0.25% 0.25% 0.25% Capacity Utilization Factor (CUF)
23% derated at the rate of 0.5% of CUF each
year from 3rd year onwards.
23% derated at the rate of 0.5% of CUF each year
from 3rd year onwards.
Discounting factor 10.20% 10.20% 10.20% 10.20% Auxiliary Consumption 6.50% 6.50%
Discounting factor 10.20% 10.20%
Norms for Solar PV Power Plants above 2 MW Norms for Rooftop PV and small Solar Power Plants below2 MW
Parameters
Norms for working out the Tariff for Solar Thermal Power Generating Projects
Mohit Kathel 3 www.indianpowerindustry.com